Question: Suppose a bank has the following Balance Sheet accounts: Loans (car loans, mortgages etc.) = $250, bonds = $200, Reserves = $100, Capital = $75

Suppose a bank has the following Balance Sheet accounts:

Loans (car loans, mortgages etc.) = $250,

bonds = $200,

Reserves = $100,

Capital = $75

If the Fed pays 1% on Reserves and the bank charges 6% on the loans and the bonds pay the bank 2.5% and the depositors earn .5% on their deposits, what is the bank's annual profit?

Answer

Ignore all else!

You can assume that the bank's only asset is the deposits.

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